Wednesday, 7 November 2012

Prediciting US Presidential Elections

President Obama was re-elected as President of the United States and for some market watchers, this was  not a surprise given that the stock market rose  in the two months prior to the election. According to InvestTech Research the stock market is the most reliable indicator of who will win the presidency. InvestTech Research tested the hypothesis over the past 100 years that if the stock market gains in the two months leading up to the presidential election, the incumbent party wins. If the market falls, the incumbent party loses.

"In the 16 elections when the stock market climbed before Election Day, the incumbent party was re-elected 15 of 16 times. And, in the 12 election years when the stock market suffered losses, the incumbent party lost 10 of 12 elections."

The stock market accurately predicted the next president 25 out of 28 times. This corresponds to a 89.2% probability of success. The three years that the stock market failed to accurately predict the outcome of the election were 1956, 1968, and 2004.

With last nights election over, the numbers can be updated. To date the stock market has accurately predicted the next president 26 out of 29 times. 

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